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Source: New York Times, By Edward Wong, Neil Gough, and Alexandra Stevenson, September 9, 2015

The police have been dropping in on investment firms and downloading their transaction records. Senior executives at China’s biggest investment bank have been arrested on suspicion of illegal trading. A business journalist has been detained and shown apologizing on national television for writing an article that could have hurt the market.

The Communist Party’s response to China’s months-long stock market crisis has been swift and forceful. In addition to spending as much as $235 billion to buy shares and bolster prices, the authorities have imposed a range of extraordinary restrictions on the sale of stocks — and backed them with the full weight of a security apparatus usually more focused on political dissent than equity trades.

Is the Communist Party reversing course?

After decades of watching China make slow but steady progress in building Western-style financial markets, many are now asking whether the party is reversing course — and whether Chinese officials are willing to tolerate the sometimes turbulent waves of selling that are inherent to such markets.

The authorities are canvassing industry players in several cities, including Beijing and Shanghai. Police officers under the Chinese Ministry of Public Security specializing in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals.

At least four other brokerage firms said last month that they were being investigated by regulators for failing to properly identify their clients.

Stock market downturn

Starting in the middle of last year, China’s markets enjoyed a breathtaking rally driven by record levels of margin financing, or borrowing to invest in stocks, and strong signals of government support, including cheery reports on the bull market in official news outlets like People’s Daily. But the Shanghai composite index has fallen 37 percent since the sell-off began in June, and the government has intervened directly and repeatedly in an attempt to support prices.

The measures include restrictions on short-selling, or betting that stocks will fall. Regulators in the United States took similar action for a month at the height of the 2008 financial crisis, but the Chinese authorities have been vague about what kinds of transactions have been prohibited and for how long. The police have said they are investigating “malicious” short-selling but have not said what that entails._________________________